Sharp-Foxconn Stake Talks Said to End March 26 Without Deal

By Mariko Yasu and Tim Culpan -
Feb 24, 2013

Sharp Corp. (6753)’s talks with Taiwan’s
Foxconn Technology Group over an investment in the Japanese
electronics maker will probably end March 26 without an
agreement, two people familiar with the discussions said.

Negotiations haven’t led to a deal partly because the
companies can’t agree on a price after Sharp’s shares declined,
said one of the people, both of whom asked not to be named
because the talks are private. The maker of Aquos televisions
fell the most in two months today, the biggest decline among
companies in the Tokyo Stock Exchange’s first section.

Stumbling blocks in the talks also include management
control and company strategy, one person said. Japan’s largest
maker of liquid-crystal displays said in November talks might
continue beyond March. Sharp is trying to raise funds as it
forecasts a record full-year loss of 450 billion yen ($4.8
billion) amid slow demand for its panels and TVs.

Foxconn, founded by billionaire Terry Gou, initially agreed
in March to buy a 9.9 percent stake in Osaka-based Sharp for 550
yen a share. The deal foundered as Sharp’s shares plunged for
seven straight months, reaching as low as 143 yen, and as
Foxconn said it would renegotiate the price.

No Decisions

The Mainichi newspaper reported Feb. 23 Sharp may suspend
the share-sale talks, without saying where it got the
information. The Sankei newspaper said the electronics maker is
considering measures including a public share sale to raise
capital by about 200 billion yen, without citing anyone.

Miyuki Nakayama, a Tokyo-based Sharp spokeswoman, said the
company wasn’t the source of either report and that no decisions
have been made on ending negotiations with Foxconn or on selling
shares.

“Discussions are ongoing,” Louis Woo, a spokesman for
Taipei-based Foxconn, said by phone on Feb. 23. “We are not
bound by any timetable.”

Hon Hai’s Chief Financial Officer Huang Chiu-lian said in
June that the company’s plans to take a stake in Sharp faced
resistance from management and board members of the Japanese
company. Sharp’s managers “fear the company becoming a part of
Hon Hai,” Huang said at the time.

Ongoing Talks

Discussions over other types of cooperation and the
possible sales of Sharp factories to the Taiwanese company may
continue, the two people familiar with the talks said. Sharp
sold a stake in an LCD factory in Sakai, central Japan, to
Foxconn’s Gou in July.

Sharp is in talks with other companies on possible share
sales and aims to include a deal in its medium-term business
plan, which may be disclosed as early as next month, one of the
people said.

The TV-maker agreed in December to sell as much as 9.9
billion yen of new shares to San Diego-based Qualcomm Inc. (QCOM) The
U.S. chipmaker has so far bought 4.9 billion yen as part of the
two-step transaction.

Sharp dropped 6 percent to 291 yen, headed for the biggest
decline since Dec. 25, as of 10:35 a.m. in Tokyo. The benchmark
Nikkei 225 Stock Average gained 1.7 percent.

Job Cuts

Sharp shares plunged 55 percent to 303 yen last year amid
widening loss forecasts. The company has reduced its workforce,
sold assets and mortgaged its headquarters to refinance debt
after posting a record 376 billion-yen net loss in the fiscal
year ended March 31. The shares have gained 2.3 percent this
year.

The Japanese TV maker said last year there was “material
doubt” about its ability to survive after it hemorrhaged 103
billion yen in cash from operations in the six months ended
September. Sharp has 200 billion yen of convertible bonds
maturing this year, according to data compiled by Bloomberg. Its
debt was cut to junk by Fitch Rating and Standard & Poor’s last
year.

Debt Collateral

Sharp’s main banks, Mizuho Corporate Bank Ltd. and Bank of
Tokyo-Mitsubishi UFJ Ltd., are set to extend the due date of 360
billion yen of loans from June 30 on the condition the TV maker
posts an operating profit in the six months to March 31 and
forecasts a net profit next fiscal year, a person with direct
knowledge of the matter said last month.

Sharp pledged as collateral a total of 741 billion yen in
assets as of Sept. 30, up from 19 billion yen six months
earlier, according to its quarterly report. Assets under
collateral included 259 billion yen of properties, 201 billion
yen of inventory and 44 billion yen of machine equipment,
according to the report.

The company said Feb. 1 it narrowed its third-quarter net
loss, helped by job cuts, asset sales and a weaker yen. The loss
was 36.7 billion yen in the three months ended Dec. 31, compared
with a loss of 174 billion yen a year earlier, it said. Sharp
posted an operating profit, or sales minus the cost of goods
sold and administrative expenses, of 2.6 billion yen for the
period.